WHAT ARE THE LIMITS ON THE RIGHT OF A CO-OWNER TO RENT HIS CONDO?

The Quebec Charter of Rights and Freedoms guarantees the right to use and enjoy property as the owner sees fit, subject to the reasonable limitations imposed by the law. Considering that a condominium forms part of a community of co-owners, should the condo association be allowed to regulate such property rights and if so, to what extent?

With the advent of airbnb type rentals and investors who purchase one or more condos with the intention of renting them to third parties, the issue has become litigious.

The constituting act of a condominium, the declaration of co-ownership, is required by Article 1053 Civil Code of Quebec to define the “destination” of the property although in most cases, the definition is broad and ambiguous. The definition is important because Article 1063 CCQ states that each co-owner has the free use and enjoyment of his condo on the condition that he respects the by-laws; does not unduly interfere with the rights of others; and respects the destination of the property. The destination of the property can only be changed with the unanimous consent of the co-owners.

The leading court decision on this point is the Court of Appeal decision in Kilzi -vs- Le Syndicat des Co-Proprietaires du 10,400 Boul. L’Acadie, 2001 Canlii 10061.

In 1982, Chateau Port-Royal, which was built in 1977-78, was converted from a residential apartment building comprising 132 apartments to condominiums. Kilzi purchased 8 condos between 1990 and 1993, of which one was occupied personally by Kilizi and the others were rented out to third parties for varying durations.

Prior the purchase by Kilzi, a certain number of units were rented but the activities of Kilzi greatly increased the proportion of rented units.

Several co-owners were unhappy with Kilzi’s rental activities, which they perceived as a threat to the tranquility of their properties and their market values.

In 1994, the condo association adopted a new by-law to regulate rentals, the relevant details of which are as summarized follows:

Sections 2 & 3) Rentals of less than 12 months are deemed to be a commercial activity and are therefore prohibited.

S. 4) Exceptionally and with the authorization of the condo board, it is permitted to rent a unit for a duration of less than 12 months if such rental intervenes between two long term rentals.

S. 5) It is prohibited for a company to rent a condo belonging to it except to a director, officer or shareholder.

6) No owner of more than 3 units can rent more than 3 units except for a long duration and only to members of his own family.

Kilzi argued that the declaration of co-ownership did not restrict the rental of units and in fact, recognized the right to do so. When he acquired his 8 units, there were no restrictions regarding the rental of units. The condo association could not therefore, deprive Kilzi of his rights that derived from the declaration of co-ownership and his purchase agreements.

According to the condo association, the purchase and rental of units by Kilzi constituted a commercial undertaking that was prohibited by the declaration of co-ownership. The by-laws were adopted in good faith and were consistent with the “destination” of the property.

The Court of Appeal agreed that the activity carried on by Kilizi i.e. the rental of 7 of his 8 units constituted a commercial activity. It also concluded that what the declaration of co-ownership prohibited was commercial activity inside each unit. Consequently, the rental of units to be used for residential purposes only was not prohibited.

The solution to the litigation revolved around the definition and application of the destination of the property.

The destination of the property is akin to its personality. It is the sum of several factors that are taken together to define it including:

·      The type of property that the collectivity of co-owners desires to have.

·      The quality of construction and the materials used.

·      The harmony of the whole of the property.

·      The location of the property such as whether or not it is in a luxurious neighbourhood, near a body of water or a highway.

·      The social standing of the co-owners.

The by-laws in question cover 3 situations:

·      Rental by a company (S. 5)

·      Ownership of more than 3 units (S. 6)

·      Short term rentals (Sections 3 & 4)

Because S. 5 completely prohibited rentals in the circumstances instead of merely regulating it, the Court of Appeal declared it to be invalid. It decided the same for S. 6.

Regarding the prohibition against short-term rentals, the Court of Appeal held Sections 3 & 4 to be valid. Witnesses at the trial described the characteristics and environment of the property as being calm, tranquil, absence of noisy activities, high level of security, the entourage, the size of the units and their relatively new physical condition.

The Court of Appeal deferred to the majority of co-owners, a certain discretion with respect to measures to be selected to ensure the respect of the destination of the property.

Even with the guidance of the Court of Appeal, the definition and application of the destination of a property remains difficult, if not arbitrary. It recalls the words of United States Supreme Court Justice Potter Stewart in a 1964 decision as to whether a motion picture was obscene.

I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description; and perhaps I could never succeed in intelligibly doing so. But I know it when I see it…

It remains to be seen how far the courts will allow a condo association to go to limit individual property rights in the interests of the collectivity.

WHEN THE OWNER OF A CONSTRUCTION AND THE LAND ARE NOT THE SAME

In Quebec law, this is called the right of superficies and it is governed by Articles 1110 and ff. of the Quebec Civil Code.

It can be created by an express or tacit agreement, or renunciation in any right to the construction by the land owner, but the ownership rights to the construction do not have to be registered in the land register, which can cause problems should the owner of the land decide to sell to a third party, as is nicely illustrated in the case of Harmegnies -vs- Belzile-Desjardins et al. 2019 QCCS 382.

Plaintiff acquired his property in 1986 and the Defendant acquired an adjacent property in 2009 from Paré. In 2007, Plaintiff had an architect prepare plans for an extension of his residence above the car shelter situated between his property and that of Paré. The architect's plans provided that the roof of the extension would be supported by Paré's roof and thereby encroach on the latter's property. To obtain a construction permit from the municipality, Plaintiff needed Paré's consent. Plaintiff alleges that he obtained Paré's consent and the construction permit, which expressly referred to the encroachment, was issued.

Two years later, Paré sells his property to the Defendant. Following an unrelated dispute between the neighbours, Defendant retains a construction company to demolish the encroaching construction to which the Plaintiff responds with an application for an injunction to block the demolition.

Plaintiff does not deny that his extension encroaches upon Defendant's property but argues that it is nevertheless legal because of Paré's authorization. The fact that the deed of sale between Paré and the Defendant made no mention of the encroachment authorization does not affect Plaintiff's rights.

Defendant argues that not only was there no mention of the encroachment in the deed of sale, but the certificate of location by the surveyor expressly affirms the inexistence of any encroachment. The Defendant argues that the authorisation to encroach is not valid since it was never disclosed to Defendant or registered in the land register. Alternatively, Defendant argues that Article 992 should apply i.e. where an owner has in good faith built beyond the limits of his land and the construction causes serious injury, the owner of the land encroached upon may compel the builder to remove the offending construction. 

The Court found in favour of Plaintiff. The right of superficies is a quasi or limited  right of ownership that was acquired with the explicit or tacit consent of Paré. Indeed, Paré never asserted any right to be indemnified for the consequences of the construction on his property nor attempted to have the construction removed. The Court also found that the encroachment was minimal or modest and did not reach the level of "serious injury" prescribed by Article 992. More particularly, although the case law considers an encroachment of 10% or greater of the total land area to be "serious", the encroachment in the present case was assessed at only between 1.6% and 3.45%. This together with the absence of bad faith on the part of Plaintiff was a bar to the application of Article 992.

And what of the argument that the right of superficies was never registered and therefore, could not be legally set up against subsequent acquirers? The Court rejected this argument by concluding that the Defendant could have no greater rights that Paré, from whom he acquired title. Since the right of superficies could be validly set up against Paré, the Defendant could not interfere with Plaintiff's rights although he could pursue Paré to obtain a reduction in the sales price or even the cancellation of the sale. 

Although the general rule is that all transfers of title must be registered in order to be opposable to third parties, there is an exception when such transfers are granted or acquired tacitly or passively i.e. acquisitive prescription; right of superficies. To require registration in all such circumstances would effectively neutralize the legal validity of such vehicles for acquiring or extinguishing real rights.

This case reminds us that title searches are not perfect and there are cracks through which exceptions may get through. In retrospect, Plaintiff and Paré should have registered a Summary in recognition of the creation of the right of superficies, which would have avoided surprises and misunderstandings, and precluded costly litigation.